5 ms·

Aren't several SV startups not even incorporated in California leave alone Delware ? Most of them are incorporated in some tax heaven such as Cayman Islands and

Aren't several SV startups not even incorporated in California leave alone Delware ? Most of them are incorporated in some tax heaven such as Cayman Islands and such ?

pge 10y ago
Most startups are incorporated as DE companies (most common) or in the state of their founding (e.g. California). This is because the laws in these states are well known and have been tested by a large body of cases that establish precedent. As a VC investor, having a company incorporated outside the US introduces additional legal risk.
- cloudjacker 10y ago
  That awkward moment when the only law that the startup will be tested by will be labor contracts in the state they operate in, and EEOC law at the federal level, and other federal laws Making their jurisdiction of incorporation completely irrelevant as the VCs push for settlement quickly.
  - harryjo 10y ago
    Sure but why add EXTRA legal risk by incorporating in an X-factor state?
    - cloudjacker 10y ago
      It isn't extra legal risk. You simply have legal teams copying and pasting incorporation structures and contracts, now they're about to get all their company's financials leaked. Delaware's Court of Chancery isn't even a perk for 99.9% of businesses. Delaware's "body of case law" can be leaned on by courts in ANY state if there is a conflict that state has never seen before.
      - MOARDONGZPLZ 10y ago
        > Delaware's "body of case law" can be leaned on by courts in ANY state if there is a conflict that state has never seen before. That's kind of how it works, but not to the effect you hope. Delaware law isn't binding outside of DE, so if another court looked at it, they would only use it as guidance. Versus if a DE court looked at it, they would use it as binding precedent. Which is the benefit of incorporating in DE. That law is out there and binding due to the large number of incorporations there and large body of case law that has developed. So answers to random questions are really known and agreed upon. Whereas with another state's court, if you can even get them to consider DE law, you're praying that they side with DE law, which isn't always the case. There's more risk. There is an advantage to incorporating in DE, whether you believe that or not. Even if the advantage is, like using Ruby or Node or something, that everyone knows the law and it's well settled and boilerplate. You don't have to reinvent the wheel.
        cloudjacker 10y ago
        what you say is true, it is just not applicable to 99.9% of businesses. When you have a dispute over capital structure and disclosure to investors, then Delaware will be useful. And you can incorporate closer to when you get to that point. Reincorporation, foreign incorporation, and continuation corporations are valid ways to switch jurisdictions when you need it. Just reading Nolo.com and incorporating in DE for limited liability of your pet project, even your pet project that may get employees, isn't necessary.
- stillworks 10y ago
  I am not a lawyer but this is a fascinating topic... When you pull out the SEC record for the company and it shows a tax heaven address, isn't that address the place of incorporation of the company ? EDIT :And by pull out I mean, purchase the record from SEC. EDIT :Replied to my own post, corrected that.
- DINKDINK 10y ago
  >As a VC investor, having a company incorporated outside the US introduces additional legal risk. An interesting counterpoint, for many startups in the Bitcoin / Cryptocurrency space, incorporating /in/ the US is seen as a risk (to some). E.g. ShapeShift, Blockstream.
DigitalJack 10y ago
Before downvoting stillworks, consider that they are just asking a question. Why penalize someone for asking a question? I wish HN had a flagging option for when we think something is improperly moderated.
- mehwoot 10y ago
  Because it might not be interesting discussion? Voting isn't to reward/penalize people, it is to surface the best discussions at the top.
geofft 10y ago
From the YC-run "How to start a startup" Stanford class: > Then the question is: where do you form one? Theoretically you have fifty choices, but the easiest place is Delaware. I'm sure you're all familiar with that as well. Delaware is in the business of forming corporations. The law there is very clear and very settled. It's the standard. The other thing is that investors are very comfortable with Delaware. They already invest in companies that are Delaware corporations. Most of their investments are probably Delaware corporations. So if you are also a Delaware corporation then everything becomes much simpler. There's less diligence for the investor to do. You don't have to have a conversation about whether or not to reincorporate your Washington into Delaware. > We had a company at YC about two years ago that was originally formed as an LLC in, I'll say Connecticut. The founders had lawyer friends there who said that this was right way to do it. When they came to YC we said, you need to convert to Delaware. The Lawyers in Connecticut did the conversion paperwork and unfortunately they didn't do it right. They made a very simple mistake, but it was a very crucial mistake. The company was recently raising money, a lot of money, and this mistake was uncovered. The company thought it was a Delaware corporation for a couple of years but in fact it was still a Connecticut LLC. I'll just say this: four different law firms were needed to figure that one out. Two in Delaware and one in Connecticut. One here in Silicon Valley. The bill right now is at five hundred thousand dollars for a conversion mistake. http://startupclass.samaltman.com/courses/lec18/ http://startupclass.samaltman.com/courses/lec18/ (transcript from http://genius.com/Kirsty-nathoo-lecture-18-mechanics-legal-finance-hr-etc-annotated http://genius.com/Kirsty-nathoo-lecture-18-mechanics-legal-f...)
deleted 10y ago
[deleted]
rat87 10y ago
Legally you still have to pay your taxes when offshoring or you could be in trouble if the taxman finds out. But Delaware is Corporate haven. Planet Money did an episode on this http://www.npr.org/sections/money/2016/03/16/470722656/episode-390-we-set-up-an-offshore-company-in-a-tax-haven http://www.npr.org/sections/money/2016/03/16/470722656/episo... > Easiest place in the world to register a business anonymously is definitely the United States. The four sort of most lax states are more particularly Delaware, Nevada, Wyoming and Oregon. ... > And again, we found that in places like the Cayman Islands and the British Virgin Islands and Jersey and then in one of the Channel Islands, we were very, very strict, and, you know, people email back and say, look, we'll sell you a company, but you must send us a scanned notarized copy of the picture page of your passport so we can keep it on file so we know who you are. But in the United States, the answer was, sure, this should take you about 10 minutes. Just fill, you know, fill in the details of the company you want on the website, transfer the money, and we'll send you the company today. I think it would be interesting if you tried to set up a company and compare how many documents they asked for compared to how many of the people in Belize are asked for.

Aren't several SV startups not even incorporated in California leave alone Delware ? Most of them are incorporated in some tax heaven such as Cayman Islands and such ?

pge 10y ago

Most startups are incorporated as DE companies (most common) or in the state of their founding (e.g. California). This is because the laws in these states are well known and have been tested by a large body of cases that establish precedent. As a VC investor, having a company incorporated outside the US introduces additional legal risk.

cloudjacker 10y ago
That awkward moment when the only law that the startup will be tested by will be labor contracts in the state they operate in, and EEOC law at the federal level, and other federal laws Making their jurisdiction of incorporation completely irrelevant as the VCs push for settlement quickly.
- harryjo 10y ago
  Sure but why add EXTRA legal risk by incorporating in an X-factor state?
  - cloudjacker 10y ago
    It isn't extra legal risk. You simply have legal teams copying and pasting incorporation structures and contracts, now they're about to get all their company's financials leaked. Delaware's Court of Chancery isn't even a perk for 99.9% of businesses. Delaware's "body of case law" can be leaned on by courts in ANY state if there is a conflict that state has never seen before.
    - MOARDONGZPLZ 10y ago
      > Delaware's "body of case law" can be leaned on by courts in ANY state if there is a conflict that state has never seen before. That's kind of how it works, but not to the effect you hope. Delaware law isn't binding outside of DE, so if another court looked at it, they would only use it as guidance. Versus if a DE court looked at it, they would use it as binding precedent. Which is the benefit of incorporating in DE. That law is out there and binding due to the large number of incorporations there and large body of case law that has developed. So answers to random questions are really known and agreed upon. Whereas with another state's court, if you can even get them to consider DE law, you're praying that they side with DE law, which isn't always the case. There's more risk. There is an advantage to incorporating in DE, whether you believe that or not. Even if the advantage is, like using Ruby or Node or something, that everyone knows the law and it's well settled and boilerplate. You don't have to reinvent the wheel.
      - cloudjacker 10y ago
        what you say is true, it is just not applicable to 99.9% of businesses. When you have a dispute over capital structure and disclosure to investors, then Delaware will be useful. And you can incorporate closer to when you get to that point. Reincorporation, foreign incorporation, and continuation corporations are valid ways to switch jurisdictions when you need it. Just reading Nolo.com and incorporating in DE for limited liability of your pet project, even your pet project that may get employees, isn't necessary.
stillworks 10y ago
I am not a lawyer but this is a fascinating topic... When you pull out the SEC record for the company and it shows a tax heaven address, isn't that address the place of incorporation of the company ? EDIT :And by pull out I mean, purchase the record from SEC. EDIT :Replied to my own post, corrected that.
DINKDINK 10y ago
>As a VC investor, having a company incorporated outside the US introduces additional legal risk. An interesting counterpoint, for many startups in the Bitcoin / Cryptocurrency space, incorporating /in/ the US is seen as a risk (to some). E.g. ShapeShift, Blockstream.

DigitalJack 10y ago

Before downvoting stillworks, consider that they are just asking a question. Why penalize someone for asking a question? I wish HN had a flagging option for when we think something is improperly moderated.

mehwoot 10y ago
Because it might not be interesting discussion? Voting isn't to reward/penalize people, it is to surface the best discussions at the top.

geofft 10y ago

From the YC-run "How to start a startup" Stanford class: > Then the question is: where do you form one? Theoretically you have fifty choices, but the easiest place is Delaware. I'm sure you're all familiar with that as well. Delaware is in the business of forming corporations. The law there is very clear and very settled. It's the standard. The other thing is that investors are very comfortable with Delaware. They already invest in companies that are Delaware corporations. Most of their investments are probably Delaware corporations. So if you are also a Delaware corporation then everything becomes much simpler. There's less diligence for the investor to do. You don't have to have a conversation about whether or not to reincorporate your Washington into Delaware. > We had a company at YC about two years ago that was originally formed as an LLC in, I'll say Connecticut. The founders had lawyer friends there who said that this was right way to do it. When they came to YC we said, you need to convert to Delaware. The Lawyers in Connecticut did the conversion paperwork and unfortunately they didn't do it right. They made a very simple mistake, but it was a very crucial mistake. The company was recently raising money, a lot of money, and this mistake was uncovered. The company thought it was a Delaware corporation for a couple of years but in fact it was still a Connecticut LLC. I'll just say this: four different law firms were needed to figure that one out. Two in Delaware and one in Connecticut. One here in Silicon Valley. The bill right now is at five hundred thousand dollars for a conversion mistake. http://startupclass.samaltman.com/courses/lec18/ http://startupclass.samaltman.com/courses/lec18/ (transcript from http://genius.com/Kirsty-nathoo-lecture-18-mechanics-legal-finance-hr-etc-annotated http://genius.com/Kirsty-nathoo-lecture-18-mechanics-legal-f...)

deleted 10y ago

[deleted]

rat87 10y ago

Legally you still have to pay your taxes when offshoring or you could be in trouble if the taxman finds out. But Delaware is Corporate haven. Planet Money did an episode on this http://www.npr.org/sections/money/2016/03/16/470722656/episode-390-we-set-up-an-offshore-company-in-a-tax-haven http://www.npr.org/sections/money/2016/03/16/470722656/episo... > Easiest place in the world to register a business anonymously is definitely the United States. The four sort of most lax states are more particularly Delaware, Nevada, Wyoming and Oregon. ... > And again, we found that in places like the Cayman Islands and the British Virgin Islands and Jersey and then in one of the Channel Islands, we were very, very strict, and, you know, people email back and say, look, we'll sell you a company, but you must send us a scanned notarized copy of the picture page of your passport so we can keep it on file so we know who you are. But in the United States, the answer was, sure, this should take you about 10 minutes. Just fill, you know, fill in the details of the company you want on the website, transfer the money, and we'll send you the company today. I think it would be interesting if you tried to set up a company and compare how many documents they asked for compared to how many of the people in Belize are asked for.